It’s easy to get bad advice from successful people. Here’s why: Successful people assume that the same circumstances that prevailed while they were achieving their success will generally prevail while you are pursuing yours. But, your circumstances will almost surely be different, probably in major ways.

The second mistake successful people make is that they underestimate the role of luck in their success. As it turns out, financial rewards–and that’s what Americans almost always mean when they use the word “success”–are distributed more randomly than most people at the top or even the bottom of the economic pyramid would like to admit. Who gets wealthy, especially really wealthy, is largely a matter of luck.

My comments below the article

If your measure is fame rather than wealth, the story is the same. It’s hard to imagine that the world’s 10th best concert violinist is far less talented than the world’s best concert violinist. Most of the difference in fame (and income) is in all likelihood due to luck rather than skill.

Luck can come in many forms, but it mostly boils down to three things: chance meetings, lucky guesses (about investments or a promising business venture or an artistic product such as a book or a song); and birth. The family you are born into, of course, greatly influences the opportunities available to you. My father once said of another man who had inherited considerable wealth that he “chose his parents well.” My father was, of course, making fun of the idea that our successes come primarily from brilliant choices.

But for this piece I have two examples of our failure to understand the limits of our knowledge from the world of finance: an overheard dinner conversation in my adopted home of Portland and a recent sad story from an acquaintance who entrusted money to a well-reputed investment management organization. The second story definitively illustrates my point. The first only illustrates it in principle since those receiving the advice have clearly not acted on it yet. We’ll return to these stories in detail later.

But first, we must keep in mind that in general terms, the future–that is, the future down through history–has not monotonously repeated the past. In fact, history is the story of what changed, and we have lots of history. This doesn’t mean that things cannot seem stable for long stretches, sometimes spanning several lifetimes. This isn’t the rule, however, but rather the exception. In fact, when this does happen, it turns out that both in society and in nature long periods of stability are frequently followed by catastrophic change. Think 2008 market crash and the 2004 Indian Ocean tsunami.

We are delving now into the what the great philosopher of skepticism, David Hume, referred to as the problem of induction which is often illustrated as follows: Seeing white swans on thousands of occasions does NOT prove that all swans are white. It suggests perhaps that the odds are high that the next one sighted will be white; but, even this could be mistaken because we can never see all instances of swans everywhere throughout the expanse of time backward AND forward–which is just another way of saying that our sample size is actually quite small, whatever we may believe. In the end, Europeans who landed in Australia did find what seemed impossible up to that point: a black swan.

Now, finding a black swan was astonishing, but not necessarily damaging on an individual or societal scale. But, if your life, livelihood or entire society absolutely depends on the future being more or less like the past (as you and others have lived it), then you would be a fool simply to let things ride without further investigation. It only takes one black swan to invalidate the supposition that all swans are white.

The great contemporary authority on risk, Nassim Nicholas Taleb, puts it best in his book entitled The Black Swan: “It does not matter how many times something succeeds, if failure is too great to bear.” Just what does this gem of brevity mean. In practical terms it means that we must consider not only the PROBABILITY of a future event, but also its possible SEVERITY. The possibility of getting a hangnail in the next week ought not to concern us much. The possibility of losing an arm ought to rivet our attention, even if the risk seems small.

Let me return to the overheard dinner conversation. An older man was counseling his son or more likely his new son-in-law about the wisdom of buying real estate no matter how high the market. The young married couple was considering buying their first home. The man used as proof of his point that he invested in real estate as a young man and never looked back. He always made money on every home when he sold it, and was able to live in better and better homes along the way. The older man counseled his son-in-law and daughter that things always turn out all right in the end–to which I can only add “OR NOT.”

It’s easy to see that the sample size here is very, very small. And, the specifics of real estate are actually very important versus, say, the specifics of a commodity such as oil or gold. Location, location, location are the three considerations said to be most important in valuing real estate.

I’m not opposed to owning real estate and have owned some in the past. But I have always considered it a very expensive consumer item, not an investment. I don’t doubt there are some who are sharp-eyed enough to make money on real estate consistently. But the rest of us, I believe, are better served by regarding residential real estate as a method of providing living quarters. The most recent housing bust should have made this abundantly clear (but apparently it did not do so for everyone).

The above example illustrates what such advice sounds like before it is acted upon. The second example illustrates the effects of breaks from past. An acquaintance enlisted a well-known investment management firm to invest all his money. The acquaintance explained that he was a very conservative investor and valued safety over return.

The investment firm put him 45 percent in stocks through broadly-based mutual funds and 45 percent in bonds, much of them of the government variety. The remaining 10 percent was in a money market.

Almost immediately the stock market and the bond market tanked simultaneously. It wasn’t supposed to be that way. The losses were not massive, but they were sudden and contrary to what the management firm had foretold.

The acquaintance sold all his stocks and bonds and put the proceeds into a money market account. Whether this will prove wise in the long run is unknown. But, the reaction was not out of fear of loses so much as fear that the future will not look like the past–that the promised steady small gains over time would not materialize because markets were acting contrary to past patterns.

If we cannot necessarily rely on past patterns to guide us, what does the voice of experience have to offer? The answer should actually be unsurprising. Since none of us can know the future, our task ought to be to make ourselves more resilient come what may. The usual advice is to get a good education (but not so much that you become a rigid thinker); maintain your health enough to do your work and the other things you enjoy; cultivate many relationships to increase your chances of meeting your needs and of doing interesting things and thinking interesting thoughts; and finally, be willing to fail while experimenting to discover the best path to your goals. There is nothing startling about all this.

We like to think that we shape our destiny rather than destiny shaping us. It’s not so much that our choices don’t matter as that we cannot accurately forecast their results. If those choices redound to our benefit, then we style ourselves brilliantly perceptive. If they dog us with failures, we blame it on the stars.

I am reminded of Michael Grant’s pithy summary of Stoic philosophy in his wonderful short history The World of Rome: “So pray not for blessings, but for the power to do without them.” That’s the true meaning of a robust life: Living well even when fortune does not favor us.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

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SRSrocco comments:

I will be adding more articles by Kurt Cobb in the future as he focuses on energy and the environment. This article perfectly describes my opinion of the majority of investors. Cobb writes about the delusion of investors who think the future will be like the past. I see many investors getting into Real Estate which will be a huge mistake going forward.

The typical Business Cycles that many analysts have been writing about for decades will no longer be true in a peak energy environment. While it is impossible to forecast how things will unfold in the future, we can make some probable assumptions.

Most of the conventional assets will not be the safe-havens in the future as they were in the past. As the global oil supply peaks and declines, many of the economic systems will unravel destroying a great deal of this supposed wealth.

People will understand that saving physical assets that store “Economic Energy” will become the prudent method of savings and retirement. The Financialization of the world’s economies will end badly as many lose most of their supposed paper wealth.

The world will become a larger place once again, as people transition back to a more local physical economy rather than the largest inefficient EROI system in human history — Globalization.

Politics is about redistributing wealth, but from whom do our ruling parasites plan to steal? About the only people left paying taxes are the white-collar industries who constitute the loot’s recipients (doctors, nurses, defense industry employees, those who work for Big Pharma, Wall Street, banks, brokerages, law firms, and the endless legions of Direct Government Drones).

You can’t run a successful parasitic system if those who are being bled are also the beneficiaries of the parasitic system in the first place.

We approach the point where it’s all a closed loop, and friction alone guarantees such a system then collapses in a chaos of backstabbing as honor among the thieves evaporates.

How does the recent breakthrough in nuclear fusion fit into all of this? According to a recent report, in September the National Ignition Facility at Lawrence Livermore Labs in California generated 350 trillion watts of power after only being active for 14 billionths of a second. More energy was released than was used in the process of firing the laser. It seems to me if fusion power is perfected, energy will become quite plentiful and a new economic boom would ensue worldwide. Comments?

The problem is high energy liquid fuels (diesel) to run transportation, agriculture, aircraft, emergency generators, maritime, things you can’t run with electricity. You can generate electricity with fossil fuels but you cannot make liquid fuels with electricity. Both the Fischer-Tropsch and Haber-Bosch use natural gas for the hydrogen. Hydrocarbons are long chains of hydrogen, carbon and oxygen formed into liquid fuels. The only other source of hydrogen is electrolysis of water.

It would take years to become commercially available IF possible. Our current grid is incapable of carrying that load and we don’t have the capital to build a new system. Capital is excess economic production, we produce only debt

Roy: good response. I am highly skeptical of new energy sources, but perhaps that’s inevitable after hearing about fusion power (and artificial intelligence and a whole host of other quantum-jump type improvements that never seemed to materialize) since the 1970’s. Additionally (as you said) retrofitting our entire energy infrastructure would take decades to accomplish, would not necessarily be feasible to completely retrofit in any case, and (color me cynical) but just simply isn’t going to happen in the United States, with a population that seems to get dumber with every passing day.

This is not to say we have not experienced tremendous technological progress, but cheap oil has been the underpinning of the entire system. Not only that, but a whole host of inefficiencies have been given a patina of improvement thanks to cheap oil (I am specifically thinking about how cheap Chinese-made goods have helped mask a steady decline in American living standards — the fact that I can now get a hair dryer at Wal-Mart for less than I could buy one 25 years ago helps hide the fact that average middle-class income has not kept up with inflation, but what happens when it’s no longer economically viable to ship $8 hairdryers to and from mainland China profitably?)

Speaking of the future this debt ceiling debate reminds me of a junkie looking for a fix. If they don’t get it the wheels come off. If they do get their fix they only want more and more. Can’t really taper a drug addiction, doesn’t work. Same goes for this debt ceiling. This country can’t get enough government debt and the amounts are accelerating to the upside. They’ll raise it and then it’s off to the races till we can raise it again! I can’t wait!!!

Off the topic, Steve. Have you ever heard of the term “purity swap” and “quality swap”?
Judging from the names, I think they mean the swap of gold of different purity and of different quality respectively. If you know them, can you explain a bit?

Monk… I try to know as much as I can about the market, but options and derivatives trading is not my cup of tea. Sometimes, I will Google search an item which helps to educate me, but I could not readily find much on those two terms.

That being said… I believe the world has become too complex. The options-derivatives markets are way too insane today. Hedging and futures used to be a market that would protect the producers and the buyers. However, today it’s nothing more than a nano-second trading free-for-all.

The world will transition from investing in DIGITS which earns a YIELD, to saving physical assets like squirrels who save acorns for the winter. PEAK ENERGY will cull the paper ponzi scheme. Thus the great stampede to the precious metals and other physical safe havens is on the horizon.

Simple is pure, Complex is adulterated. I know this may not be the answer you were looking for, but I believe the future will be a world that will become a much larger place again where people live more local and simple. Sure, technology will still be here, but it won’t be the Religion that we following blindly today.

That’s an interesting world view. And one I subscribe to with one minor additional detail. This may not seem to be topical exactly but I think the concept is appropriate for discussion here.

Success of any venture must include the knowledge that quality of idea (or literature, or music, or landscape, or work of art) is not a prerequisite for success. Think of the bell curve model for music. Is popular music the best music because it is the most commercially successful? Beyond the question that this is a subjective subject, one would have to agree (I think) that commercial success is not a measure of quality. Example, are the tunes of Mozart better quality than Lady GAGA? And yet most pop music outsells Mozart in the short term and pop music in general outsells the symphonic music. And an argument can be made that popular music promotes stagnation of the art form by catering to the lowest common denominator. The same goes for commercial art. Wildlife artists capture a lot of the market because the market is not sophisticated. Artists pursue the dollars, pursue the style rather than the creativity of new expression. The public is not tolerant in commercial terms with new ideas and hence these people (musicians too) become the proverbial “starving artists” and the expression of new ideas is curtailed. This I call the “tyranny of mediocrity”. (And I do not dismiss Wildlife art as technically bad, it is just commercially motivated.)

Which brings up the one factor not discussed in the article: success is also based on successful marketing….And luck,,,,and often social connections, family history….All of which may have little to do with quality.

The frustrating reality for all new ideas is that the judgement usually comes from lesser minds that are in a position of power to judge. Brilliance is irrelevant. The zipper,(we should all know this) was invented around 1900 but was ignored for fifty years as a brilliant innovation…That pretty much says it all…

Regarding the earlier comment about the potential of nuclear fusion in producing liquid fluids for transportation:

There is no question that all our energy problems would be solved if nuclear fusion would become a commercial reality. With sufficient electrical energy we could produce liquid fuels by splitting off hydrogen from water and then combining it with carbon which we could simply obtain by pumping carbon dioxide out of the atmosphere cleaning the atmosphere at the same time. The process would be highly inefficient from the energy point of view, but doable provided the electricity generated by fusion would be “too cheap in order to meter it”.

One should also not forget that nuclear fusion produces nuclear waste. So a large scale implementation of nuclear fusion would pollute the environment with radioactive material. The disposal of that waste is an unsolved problem. Experts are at a loss on what to do in Fukushima.

There is also a new theory regarding the origin of precious metals. The standard theory in the past was that these metals were generated by so called “supernovas” – dying stars which would collapse at the end of the life and release enough energy in order to create atoms of the heavier elements like gold, silver, lead etc. The problem with that theory was that computer simulations of collapsing stars could not confirm the creation of the heavy elements. The new theory
(see https://www.sciencenews.org/article/gold-seen-neutron-star-collision-debris)
is instead that precious metals have their origin in the collision of neutron stars, that is, the leftover from former stars.